How The Shale Boom Is Boosting U.S. Exports

Most people are at least somewhat aware that the U.S. shale oil boom has resulted in lower fuel prices at the pump. But they are probably less familiar with the economic impacts of the shale gas boom.

I have covered some of the impacts of the cheap shale gas bounty in the past. They include a surge of natural gas exports to Mexico and displacement of coal in electric power production.

Today I want to talk about the impact on the chemical manufacturing industry. Natural gas is used in chemical manufacture both as a raw material and as a source of fuel. The constituents of natural gas — methane, ethane, propane, etc. — can be separated out, with each being used as a raw material for different chemical processes.

Methane, for instance, is the primary raw material for methanol production. In 2015, Canada’s Methanex – the world’s largest methanol producer – began making methanol at a new 1.1 million ton per year plant in Geismar, Louisiana. In 2016, the company started up a second plant in Geismar with the same methanol capacity.

What is interesting about these plants is that they were relocated from the company’s production site in Punta Arenas, Chile because of much lower U.S. natural gas prices. The cost of the relocation of these two Methanex plants from Chile was about $1.4 billion, and they employ an estimated 165 people directly and 1,038 indirectly.

This is but a small fraction of the total amount being spent by the chemical industry to relocate and build new capacity in response to low U.S. natural gas prices. According to the American Chemistry Council (ACC), as of July 2017, there are 310 completed, started or potential chemical industry projects chemical industry projects due to shale gas.

The ACC estimates that these projects represent $185 billion in new capital investment and will create 464,000 direct & indirect jobs by 2025, $310 billion in new economic output, and will bring in $26 billion in new tax revenue by 2025.

Ethane is the second most abundant constituent of natural gas (behind methane) and is primarily used to produce ethylene, which is the world’s most widely used petrochemical. The flood of new shale gas supplies has overwhelmed the market for ethane, sending the price plummeting. This, in turn, has made the economics of ethane derivatives manufacture like ethylene and polyethylene extremely attractive in the U.S.

Four ethylene crackers are coming online this year on the U.S. Gulf Coast, and another five under construction will begin operations by the end of 2019. The total annual capacity of these projects is 10.9 million metric tons per year, which should fuel ethylene exports. Even with all the new ethylene capacity, the shale gas boom created so much excess ethane in the U.S. that ethane futures through December 2021 are under $0.35/gallon.

The $768 billion U.S. chemical industry is the second largest in the world, with 15 percent of the global market. The industry provided 811,000 U.S. jobs and accounted for $174 billion of U.S. exports in 2016 — 14 percent of all U.S. exports.